For each bank being assessed, the score for a particular indicator is calculated by dividing the individual bank amount (expressed in EUR) by the aggregate amount for the indicator summed across all banks in the sample. This figure is then multiplied by 10,000 to express the indicator score in terms of basis points. Each category score for a bank is determined by taking a simple average of the indicator scores in that category. The overall score for a bank is then calculated by taking a simple average of its five category scores.

Qualitative Supervisory Judgment

The quantitative indicator-based approach described above can be supplemented with qualitative supervisory judgment. This is only meant to override the indicator-based approach in exceptional circumstances, is subject to peer review and is based on the following four principles:

the bar for judgmental adjustment to indicator-based scores should be high;

the process should focus on factors pertaining to the impact of a bank’s failure, not the probability of its failure;

views on the quality of the policy/resolution framework within a jurisdiction should not be taken into account; and

the judgmental overlay should comprise well documented and verifiable quantitative as well as qualitative information.

Identifying G-SIBs and Higher Loss Absorbency

Banks that have an assessment score that exceeds a pre-determined cutoff level will be classified as G-SIBs. Supervisory judgment may also be used to add banks with scores below the cutoff to the G-SIB list. G-SIBs will be initially allocated into four equally sized buckets based on their scores, with varying levels of higher loss absorbency (“HLA”) requirements applied to the different buckets, as detailed below. It is worth noting that the figures below represent minimum levels, with national regulators being free to impose higher requirements if they so wish.

The G-SIB assessment will be performed annually and may lead to the reallocation of a G-SIB into a different bucket. The timing of the publication of the cutoff score and bucket thresholds has been brought forward by one year to November 2013 and will be based on end-2012 data supplied by banks. Whereas previously, the BCBS had intended to delay updating the denominators used to calculate banks’ scores until the completion of the first three-year review of the G-SIB methodology, denominators will now be updated on an annual basis so as to avoid creating a “cliff effect” for banks. The methodology itself will be reviewed every three years in order to capture developments in the banking sector and advances in the measurement of systemic importance.

The HLA requirement is to be met only with Common Equity Tier 1 capital and will be implemented through an extension of the capital conservation buffer. It will be phased in in parallel with the capital conservation and countercyclical buffers, starting on 1 January 2016 and becoming fully effective on 1 January 2019.

If a G-SIB breaches the HLA requirement, it will be required to remediate and will be subject to limitations on dividend payouts in the meantime. If a G-SIB is reallocated into a higher bucket, it will be required to meet the additional HLA requirement within 12 months.

Disclosure requirements

Starting with financial year-ends on or around 31 December 2013 and continuing thereafter, all banks with a leverage ratio exposure measure exceeding EUR 200 billion (this will automatically include the world’s 75 largest banks) will be required to ensure that the 12 indicators used in the assessment methodology are made publicly available. This disclosure should be required no later than four months after the financial year-end, and by the end of the following July at the latest. The reporting and disclosure requirements necessary to facilitate implementation must be enacted by national regulators by 1 January 2014.

Conclusion

The reporting templates through which bank supply the underlying information on which the G-SIB assessment methodology is based, highlights the increasing importance of data in the lives of banks. The data required to be provided as part of G-SIB identification process is high level but assumes that banks have equally high levels of underlying data integrity as well as ready access to information pertaining to a wide range of activities, including on- and off- balance sheet items, derivatives, security arrangements and payments.

In an environment where regulatory constraints are restricting the ability of banks to broaden their business offerings, the ability to generate and disseminate accurate data is fast becoming the new frontier by which banks can differentiate themselves in front of both their clients and their regulators. In order to take advantage of this changing landscape, it is imperative that banks focus on the development of a culture whereby data occupies a position of central importance within the institution. As the updated G-SIB methodology shows, over time, the consequences of failing to get this right will only become yet more serious.